Should you invest in a multi-asset allocation fund?

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Investors are caught between a rock and a hard place as the Indian economy shows little signs of turning around. When the economy improves, should they boost their equity allocation?

If they follow the debt route, should they lower their portfolio’s risk, or should they invest in gold until the uncertainties subside? In such a scenario, funds that invest in many asset classes and manage allocations based on changing economic cycles and market movements may be appealing.

Funds that invest in various assets are known as multi-asset funds or asset allocation funds in the Indian mutual fund industry. Multi-asset funds is the official name, but asset allocation funds are what many fund managers and advisors refer to them as.

Investing in a multi-asset fund means investing in a variety of different asset types. There are three main asset classes that these schemes often invest in: equities, debt, and gold. A multi-asset allocation across various asset classes is used to boost and diversify an investment portfolio. The fund’s goal is to reduce the risks associated with investing just in one type of asset. As per the Value Research data, multi-asset allocation has given a return of 32.42%, 15.62%, and 9.91% over one, three, and five years as of  October 22, 2021.

Features

– Multi-asset allocation enables investors to expose their portfolio to numerous asset classes with variable risk-reward elements. It helps investors to minimise their risk and to get steady revenues via distinct market cycles.

– To make sure that assets are well-distributed among asset classes that generate higher returns than others, rebalancing the portfolio is critical. Automatic portfolio rebalancing is an option available with multi-asset allocation mutual funds, and it benefits investors in a variety of ways. Rebalancing portfolios and reallocating assets are critical in navigating the market’s ups and downs, as it tends to be somewhat volatile.

– Not everyone has the financial resources to hire a professional to build their investment portfolio from scratch. Investing in multi-asset allocation funds, on the other hand, gives investors access to a ready-made portfolio as well as a risk-reward investment alternative that is well-balanced. By investing in a single type of fund, investors can gain access to various asset classes.

Who should invest?

-Investors with a limited appetite for risk but a desire for regular returns on their investments can consider multi-asset allocation Mutual Funds.

-Such investors benefit from diversification by spreading their risk across a variety of asset classes.

-It also provides a consistent income stream for investors, even if certain asset types perform worse than usual.